Macroeconomics Week 1 Notes
Macroeconomics Week 1 Notes ECON 104
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This 4 page Class Notes was uploaded by Morgan Owens on Thursday January 21, 2016. The Class Notes belongs to ECON 104 at George Mason University taught by Stephen Gillepsie in Summer 2015. Since its upload, it has received 214 views. For similar materials see Macroeconomics in Economcs at George Mason University.
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Date Created: 01/21/16
Macroeconomics Week 1 Notes: 1/21/16 6 principles: 1. People respond to incentives- people want what makes the feel good and avoid what makes them feel bad. Biggest incentive is cost. 2. There is no such thing as a free lunch- There is always an opportunity cost for everything, it doesn’t have to be a dollar amount. 3. No thing is just one thing- There is always at least 2 sides. For example: buyer vs. seller 4. The law of unanticipated influences- Any decision you make has a consequence you haven’t thought of yet. Small changes can lead to huge changes later on. 5. The law of unintended consequences- There is always going to be a consequence that what not intended. 6. No one is, and no over ever can be, in complete control. Differences between Macro and Micro Micro- the study of economics on an individual, group or company level Macro- the study of national economics, size of effects are really hard to predict in advanced and measure. * Small differences in models can lead to large differences in appropriate policy Sometimes very small changes in the economic model can lead to large differences in the impact of the policy. Thus different economist using different models can come up with different predictions about what will happen. There are also winner and losers in Macroeconomics Winners are those who benefit from a change and losers are those who don’t benefit. Ex: large decrease in the price of oil, winners are those who have cars and need gas for your car because price went down. But company in Texas are losers because their income decreased. Economic Models: Economic models: deliberate simplification of reality. Allows us to zero in on factors that are thought to be most important. *It lets us see a forest instead of a million trees. - By choice models are not realistic - Economist are very criticized because there models aren’t used in real world behavior. The economist models are helpful to understanding the real world but doesn’t necessarily have to mimic the real world. * The predictions we draw from an economic model are always true meaning they are logically true. The importance of the models is if they help us understand real world behavior. - Ceteris Paribus: all else things stay the same - Models are all going to concern aggregate behavior rather than regular behavior Production possibilities Simplifying model: a model of a society that only produces 2 things Guns Butter All production resources go to butter---------------------------------------------0--- 500 200 400 275 300 Varity of making guns and butter--------------------------------------- 340 200 380 100 400 0 All production resources go to guns------------------------------------------------- When you transfer the chart to the graph and connect the dots, you then can see all the possible combinations of guns and butter, along with the combinations that are inside and outside the curve. outside the curve- They are considered infeasible – unable to produce Inside the line= feasible but inefficient. All the points that fall on the line = feasible and efficiently producing products. Economic concepts: Scarcity- not all combination are possible, short of supply Opportunity cost- what you give up when you chose to make one more unit of something else. Ex: the cost of 1 more gun is less butter Efficiency: points on the production possibility curve where all resources are being used in the most efficient way - Points on the outside are infeasible -Points on the inside are possible but resources aren’t being used efficiently Normative preferences: Notes: - no society ever uses all of their resources efficiently People, factories and other resources would be worn out if they were used on the production curve. Production possibility curves: Always concave because of the Law of Increasing Cost - The higher opportunity cost - The more you have of 1 good makes it increasingly expensive to produce 1 more unit
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